Poverty and Inequality in the Global Economy

Yates, Michael D., Monthly Review

Capitalism is hundreds of years old and today dominates nearly every part of the globe. Its champions claim that it is the greatest engine of production growth the world has ever seen. They also argue that it is unique in its ability to raise the standard of living of every person on earth. Because of capitalism, we are all "slouching toward utopia,"--the phrase coined by University of California at Berkeley economist J. Bradford DeLong--slowly but surely heading toward a world in which everyone will have achieved a U.S.-style middle-class life. (1)

Given the long tenure of capitalism and the unceasing contentions of its adherents, it seems fair to ask if it is true that we are "slouching toward utopia." Let us look at three things: the extent of poverty and inequality in the richest capitalist economy--that of the United States; the extent of poverty and inequality in the poor countries of the world; and the gap between those countries at the top of the capitalist heap and those at the bottom.

The United States is often referred to as a nation dominated by the middle class and one in which it is relatively easy for a poor person to become a person of means. Here, it is said, equality of opportunity rules. It is hard to know what phrases like "middle class" and "equality of opportunity" mean, but it is fair to think that such a society ought not to be one in which there is widespread poverty and ought to be one in which people do indeed have a great deal of economic mobility.

The data on poverty and inequality of income and wealth do not square very well with this image. In the United States, the federal government had defined a "poverty level of income," one below which families are defined to be poor. It is an income below which families would find it difficult to live without serious problems and which would place them in real danger when faced with any sort of economic crisis, such as a sick child or an injury at work. This official poverty level of income is equal to three times the minimum food budget calculated by the Department of Agriculture, a very modest standard with numerous restrictive and unrealistic assumptions built into it, for example, that poor families will be able to buy food at the lowest unit price and will know how to convert the cheapest food into nutritious meals. In 2002, this was $18,392 for a family of four, or $12.60 per person per day. In 2002, 34.6 million persons lived in poverty, 12.1 percent of the population. The incidence of poverty was 24 percent for blacks and 21.8 percent for Hispanics. In 2001 (I don't have data for 2002), 35.2 percent of black children under six lived in poverty, as did 29.1 percent of Hispanic children under six. These numbers rise and fall over time and while they have been higher in the recent past, they are still remarkably high when we consider the enormous productive capacity of the U.S. economy and the more than 200 years in which this capacity has steadily risen. And if we used a more realistic definition of poverty--such as one-half the median income, a poverty definition typically used to compare the rich capitalist economies--the incidence of poverty would increase dramatically to 17 percent (in 1997), or more than 45 million persons. (2)

What are the chances that this extensive poverty could be eliminated? Not very high, given that this poverty coincides with large and growing inequality of both income and wealth, inequalities ingrained in the laws of motion of capitalism.

In the United States in 2000, income inequality was greater than at any time since the 1920s, with the richest 5 percent of all households receiving six times more income than the poorest 20 percent of households, up from about four times in 1970. A study by economist Paul Krugman (who has been skillfully assailing the Bush administration in his New York Times column) estimated that perhaps as much as 70 percent of all of the income growth in the United States during the 1980s went to the richest 1 percent of all families. …

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